We’ve written about crypto in the UK before – https://htj.tax/?s=crypto+uk+
Approximately 2.3 million people in the UK own cryptocurrency. The default position is that cryptoassets are considered a personal investment, meaning that there is capital gains tax (CGT) when selling or disposing of cryptocurrency. This default position may change if HMRC suspects tax avoidance. HMRC doesn’t consider cryptocurrecy to be actual currency or money nor does it accept that buying and selling
cryptocurrency is exempt as “gambling”. Though the gambling exemption may apply if a taxpayer is using a platform to bet on the movement of the cryptoassets , rather than actually holding the underlying asset directly,
e.g. via a spread betting site.
There are, of course, exceptions to the presumption that cryptocurrency is a CGT asset. For example, an individual may be subject to income tax and NI on cryptocurrency received from their employer as a form of non-cash payment, or where an individual is mining coins. In very specific circumstances, a taxpayer may be carrying on a financial trade in cryptoassets, and so would be subject to income tax on their profits. However, this is exceptional. The threshold for trading activity is similar to that applied when considering if an individual has a trade in share dealing.
HMRC notes that whether there has been a disposal of cryptoassets is a broad concept but includes events such as:
• selling tokens for money
• exchanging tokens for a different type of token
• using tokens to pay for goods or services; or
• giving away tokens to another person (unless nil gain/nil loss treatment applies).
This means that using cryptocurrency to purchase an item can amount to a disposal for CGT purposes. There are instances where there is no CGT disposal. For example, if a client moves their tokens between “wallets” there is no disposal, as the client retains beneficial ownership of the tokens. If there has been a disposal of tokens, certain costs can be deducted, as set out in s.38 Taxation of Chargeable Gains Act 1992 (TCGA) . HMRC’s view is that such costs can include:
• the GBP consideration originally paid for the asset
• transaction fees paid for having the transaction included on the distributed ledger
• advertising for a purchaser or a vendor
• professional costs to draw up a contract for the acquisition or disposal of the tokens
• costs of making a valuation or apportionment to be able to calculate gains or losses.
HMRC has specific views on whether certain exchange fees are allowable under s.38 , see CRYPTO22150. Cryptoassets are subject to the pooling requirements outlined in s.104 TCGA
One of the most difficult aspects of taxing cryptoassets, namely exchange tokens, is determining their situs. Given that cryptoassets are digital, identifying their location can have significant implications, for example, where a client uses the remittance basis of taxation. HMRC’s view is that, where a cryptoasset is a digital representation of an underlying asset, the location of the underlying asset will determine the location of the cryptoasset, per s.275 TCGA .
Where there is no underlying asset, HMRC takes the view that none of the statutory rules apply. In short, HMRC’s view (with respect to exchange tokens) is that the location of the cryptoasset is determined by the residency of the beneficial owner. So, if a taxpayer is UK tax resident, HMRC can deem them liable to UK tax. This analysis applies even if that client is taxed on the remittance basis.